Buyer, beware work done without permits

Dear Real Estate Adviser,
We are interested in buying a home that has two small bedrooms, which were added more than 30 years ago without permits. The sellers want to sell as is, and if we make an offer, we'll ask for a discount. If we hire an inspector, what would the inspector do? Would he or she open walls and ceilings to inspect electrical and plumbing work?
-- Ken S.

More On Home Inspections:

Dear Ken,
First off, a home inspector will not tear into walls and ceilings to inspect wiring and other work, even if the house was never properly inspected after apparent illegal additions were built. That's not what inspectors do. When hired by you, a home inspector would work for you exclusively. His or her job would be to examine the physical elements of the home for flaws and stability. They often can't spot unpermitted construction unless it's overtly shoddy. And if they do identify some, they won't rat you out to the code-compliance people. So don't hesitate to hire one, especially given the property's history.

As for the unpermitted work, there are several not-so-great things that can happen if you buy the place:

The onus to disclose the work will now fall on you when it comes time to sell again, unless you, too, try to discreetly sell as is.

If the code-enforcement department discovers the illegal construction, it may still require you to remedy it, whether that includes minor changes or even a partial tear-down, and pay for permits (and possible penalties).

If the code-enforcement folks inform your taxing authority of the illegal addition after you buy the place, you may be assessed retroactively for back taxes based on the additional square footage and possibly interest and penalties. By the way, if there's a disparity between the square footage on the tax-assessor rolls and the square footage of the house now, that's a big red flag.

While permitted work is "grandfathered" after building codes get updated, code-enforcement officials may mandate that any illegal work be brought to current code.

Unpermitted additions often are not covered by homeowners insurance policies, so if a guest is injured in one of those two bedrooms, you might find yourself embroiled in a lawsuit if your insurer refuses to pay.

While a relatively rare occurrence, mortgage companies have been known to call a loan for immediate payment if they can prove you knew about an illegal addition, reasoning that they don't want to take a chance on exposing themselves to future liabilities.

If you somehow run afoul of your new neighbors, who may have been aware of the illegal work under the old owner, they just might "drop a dime" on you and report the unpermitted work.

However, after 30 years, it's not especially likely the unpermitted work will stand out. Without identifying yourself, you could contact your local code-enforcement office and ask what its policies are about scenarios such as yours and how much it would typically cost to remedy any problems.

If you do buy this place, make sure you get a steep discount because you will likely have to offer a discount yourself if and when you sell. Good luck!

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